The second edition of the Annual Malta Residential Rental Study provides an in-depth analysis of the second year since the introduction of the rent reform in 2020.
This reform was intended to provide a regulatory framework reflective of a modern private rental market. The report was compiled by the members of the Rental Observatory, a multi-disciplinary team of experts in economics, legal and housing policy, including key stakeholders like the Central Bank of Malta.
The mandatory registration of leases provides a treasure trove of previously unavailable information on the private rental market. A total of 61,552 leases have been registered with the Housing Authority since the introduction of the Private Residential Leases Act.
From these, 37,976 leases were active at the end of 2021, representing an increase of 49% compared to a year earlier.
More than half of these active contracts commenced in 2021, with the remaining starting in 2020 or before. The number of contracts renewed in 2021 amounted to 14,440.
An important aspect of these statistics is that they cover the full spectrum of properties in the private rental market, which might not always be the case for advertised datasets.
This data facilitates the identification of structural and cyclical patterns in the rental market. Structural patterns such as the share of rented properties by locality, region, property type and size have remained remarkably stable over the last two years but a longer period is usually required to detect significant changes in these aspects.
Most contracts registered with the Housing Authority are long-term leases, with the combined share of short-term and shared spaces amounting to less than five per cent. However, some changes in contract durations were observed.
The share of contracts with a duration of one year, which represents around 40% of all active contracts, has almost halved compared to the situation prevailing in 2020, with a corresponding increase in the share of contracts with a two-year duration.
This difference is explained by the fact that some initial one-year contracts were subsequently renewed for an additional year after the end of the original termination date. An increase in the share of contracts with longer durations was also observed.
The reform is providing flexibility while ensuring security and stability of tenure for those that need it
The reform is thus reaching its stated aims of providing flexibility while at the same time ensuring security and stability of tenure for those that need it.
The availability of granular information on registered leases allowed for the development of rent indices to assess the cyclical evolution of prices over time. Overall, more than 78,500 observations, including new registrations and renewals, were used covering the 24-month period between 2020 and 2021. These indices for registered rents are the first of their kind for Malta and, going forward, will provide another valuable source of information to closely monitor developments in the rental market.
These indices are used to calculate the fluctuation in rents over time. The annual growth rate in registered rents averaged between 2.4% and 2.8% in the second half of 2021. This contrasted sharply with the situation observed in the first half of 2021 when rents declined compared to a year earlier as the effects from the pandemic were still being felt.
Despite this recovery, the indices indicate that rents were still around 5% lower at the end of 2021 compared to pre-pandemic levels.
Another benefit of the indices is that they allow for the calculation of the market rents according to the property’s characteristics such as location, type and size, as well as contractual factors. For example, the rent for a two-bedroom apartment in Sliema with a long-let lease stood at €1,056 in 2021 Q4. The rent for a property with similar characteristics in Marsascala and St Paul’s Bay stood at €616 and €575, respectively. In Gozo, it stood at €475 although, even here, differences by locality are observed.
This information opens interesting avenues for research and policy applications. Indeed, another article in the same publication uses these estimates of market rents to look at affordability issues faced by young individuals.
Other important statistics on the rental market are also becoming available from the mechanisms introduced by the reform. One such case is through the Arbitration Panel, a quasi-judicial body that was set up within the Housing Authority to settle minor disputes between the contracting parties in a swift manner. The last article in the publication provides an in-depth analysis of the judgments delivered by this panel in its first two years of operations.
These decisions provide additional clarity for the landlord-tenant relationship, particularly on the extent of their respective rights and obligations in areas such as the retention of the deposit, maintenance duties and the charging of utility bills, all key areas for a well-functioning market.
Overall, the current legislation has introduced basic standards in the rental market. This does not mean that all abuses have been eradicated. They are not and additional enforcement action may be required to ensure that remaining cases of abuses or non-compliance are eliminated.
However, it is clear that the availability of this data brought about by the reform, combined with the scrutiny and analysis that it allows, as evidenced by Annual Malta Residential Rental Study, constitutes a step in the right direction for a professional, transparent and fact-based regulatory framework for the private residential rent market in Malta.
Leonid McKay is the CEO of the Housing Authority and Brian Micallef is the manager of the Economic Research Office of the Central Bank of Malta. The views expressed in this article are those of the authors. They should not be interpreted to reflect the views of the Central Bank of Malta.